Q3 2023 Vizio Holding Corp Earnings Call
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Good afternoon, and welcome to Vizio is Q3 dollars 23 earnings call on Michael <unk> Director of Investor Relations. Joining me for today's discussion are willing lags, our founder and CEO and Adam Townsend. Our CFO also joining us for the Q&A portion of today's call is Michael Donald our chief revenue.
And strategic growth Officer. Please note that in addition to our earnings release and todays remarks, a slide presentation can be found on our Investor relations website at investors that vizio Dot com I will refer you to the third slide in our presentation and remind you that certain statements made on this call, including certain statements about our expected fourth quarter results advertising relationships and partners product.
Outs and functionality and future customer demand for our products are forward looking statements that involve risks and uncertainties. These risks and uncertainties that could cause actual results to differ materially from these forward looking statements are discussed in more detail in our filings with the SEC and our press release that was issued this afternoon. We undertake no obligation to revise any statements to reflect change.
That occur after this call except as required by law during the call. We also refer to non-GAAP financial measures, including adjusted EBITDA and certain operational and financial metrics reconciliations to the most comparable GAAP measures for non-GAAP financial information discussed on this call as well as further information related to guidance definitions and metrics can be found in our earnings release, which.
On the investors section of our website note that our quarterly comparisons in todays remarks, we made on a year over year basis, and all metrics reported on today's call will be for Q3, 23%, whereas at the end of Q3 2023 as applicable unless otherwise specified now I will turn the call over to William.
Thank you Michael and Hello, everyone. Thank you for joining us today.
Our third quarter results demonstrate that Vizio is continued focus on high quality products and innovative user experiences is driving strong gains in user engagement and platform monetization.
This in turn is driving our continued outperformance in advertising revenue in the connected television space.
Exceptional product.
About <unk> that continues to execute well.
Despite market <unk> delivered another strong quarter with 27% growth in advertising revenue.
Our growth was driven by large AD categories, such as insurance <unk> retail and CPG.
Importantly.
We are delivering growth in efficient and scalable fashion.
This reflected in Brazil, posting a third consecutive quarter of record total company gross profit margin of 22, 6%.
Total company adjusted EBITDA came in above the high end of our guidance range, even as we continue to invest in expanding our multi pronged growth strategy.
There is no doubt.
That we are seeing the fruits of these investments paying off.
We have built up our platform resources quality engineering.
Software development advertising tax and sales.
<unk> has made tremendous progress in driving monetization.
Over the past few years, we have learned much.
About user engagement and behavior trends, which informed.
About TV lifetime value.
Growth in engagement drive broadcast.
Which grew 14% during the third quarter to a record $31 55.
Just two years ago.
On the $20.
So we will have come a long way.
A brief time.
Yet we believe there is still continued room for future growth given the strong consumer shift to streaming.
Given these monetization tailwind.
We are further refining our DFAST strategy, emphasizing larger screen sizes, which tend to be the primary television.
In the home.
These larger units will generate greater economic value over the long term.
We will have historically thing.
<unk> engagement matters, such as streaming hours on lower churn with our larger Tvs, which together drive higher ARPA.
We believe that building a higher quality installed base.
Investing in the right skus, rather than focusing on overall shipment volumes will best position us to drive sustainable growth possibility.
Overtime.
Additionally over.
Over the past few years have been continuously retooling enhancing our operating system to unlock further growth opportunities.
Through these investments our latest version is even a faster and more responsive.
With the improved user friendly experience that drives engagement and customer satisfaction.
We have also reached a phase where we believe we now have the software and the experience to help other TV manufacturers.
With them their platform solutions.
For the first time, we are beginning to explore potential partnership opportunities with other TV Oems.
Will happen looking for alternative operating system to hub group.
CTV footprint in the U S.
Our deep expertise.
<unk> integrated hardware and software.
Hi.
Think potential.
Mutually.
First of all comps for Brasil future partners.
This will take some time to work through the details with potential partners.
But we are excited to open up.
Additional growth opportunity for Brazil.
Turning to our device segment.
Should be no surprise to hear that TV environment as being hyper competitor over the past quarters.
Which has had an impact on our market share.
In the meantime.
With financial discipline will continue to focus on what we can control.
Which includes offering higher quality Tvs at a price.
Exceptional value to the consumers.
We recently rolled out our all new quantum <unk> cooler in 65 inch putting price of $499.
And 75 inch or $699.
That value.
Consumer account experience exceptional picture quality and premium gaming features.
Tumors can also elevate the personal entertainment experience with one of those deals premium sound bars.
Reviewers reasonably rate that consumers will be hard pressed to find another atmos enabled some bar for under $500.
And of course.
This new TV collection.
That's entertainment experiences right out of the box.
Download neither.
Everything <unk>.
Our consumer kind of experienced a reasonably at ESPN app, including ESPN plus.
Along with almost 200 other building streaming apps.
Including our own <unk> plus.
With <unk> plus we offer users.
Over 290 free AD supported streaming channels and over 15000 on demand titles spanning a wide range of genres.
So as we look towards the future. We are excited about new growth drivers and the opportunity. We see ahead for continued growth.
Well, Brazil has already.
Come a long way I still believe we are in the early innings of what a smart TV can become.
Our focus on building a quality user base.
Winning part of us.
<unk> was the potential for incredible off site.
With the right team the right products and the right use of experience Paul at the right time.
I'm more excited now than ever before.
<unk> future.
With that I'll turn the call over to Adam to review, our third quarter results in more detail.
Thanks, William before opening the call to questions I will take you through our third quarter results and discuss our outlook for Q4 are.
Our third quarter results demonstrate the benefits of our strategic focus on driving improvements in the quality and engagement level across our install base through this focus we are seeing steady growth across many key metrics that we use to track the usage of an engagement with our platform.
We'll provide more detail on these metrics in a moment.
But first for the quarter total company revenue came in at $426 million down 2%. This was through a combination of lower device revenue of 12% on lower TV unit volumes and lower average unit price, partially offset by higher platform plus revenue, which grew 22% on continued strength in advertising.
Again benefiting from the rapid growth in our high margin platform plus revenue total company gross profit grew 20% year over year to $96 million.
Gross profit margin expanded by 423 basis points to 22, 6%.
As William mentioned this was our third consecutive quarter of record consolidated gross profit margin.
Platform plus represented a new high of 37% of total revenue and over 100% of consolidated gross profit dollars.
Total adjusted EBITDA came in at $27 million, well ahead of our expectations benefiting from more judicious price promotion on device capitalized software development expenses and continued growth in high margin advertising revenue.
Net income totaled $14 million up from 2 million in the year ago period.
While the retail environment has presented a number of challenges this year for many I don't want to lose sight of the financial performance. We have delivered so far this year. Despite these challenges.
Through the first nine months total gross profit grew 14% with a 480 basis point improvement in gross profit margin and adjusted EBITDA grew 59%.
Our advertising revenue grew 28% to over $300 million for the first time ever and total company net income improved to $15 million.
From a loss of $7 million for the same period a year ago.
Now to provide some additional segment level context for the third quarter, specifically I will start with platform plus for the quarter platform plus revenue came in at the top end of our expected range and gross profit exceeded our outlook.
This upside was due to stronger than expected homescreen revenue, which along with the previously mentioned capitalized software expenses also helped deliver higher than expected gross profit margin.
Our strong platform plus revenue growth of 22% was driven by a 27% increase in advertising revenue. We are particularly pleased with the continued strength of our advertising business given some of the softness being seen across the broader advertising marketplace. As we have said before we are participating in the fastest growing part of the advertising market and continue to take share.
Within that market.
We expanded our direct advertising relationships by 20%, adding 66, net new advertisers and the returning advertisers increase their spend with us by 29% versus the year ago period.
As we bring more content to our viewers and utilize enhanced personalization tools as well as an improved search and discovery experience. We are seeing continued growth and engagement.
Growth in time spent streaming outpaced all other sources on our TV during the quarter.
Smart cast hours, a proxy for streaming time grew 21% to $5 2 billion hours compared to a 10% increase in total vizio hours.
On a per active account basis streaming hours totaled $290. The highest quarterly level, we have seen in almost three years now.
Not surprisingly this growth in streaming time came at the expense of linear video viewing where time spent on cable declined by six percentage points.
So taken together smart cast hours as a percent of total hours during the quarter reached an all time new high of 58%.
Said differently. Our users are spending more time streaming through our smart cast operating system than watching content on cable television broadcast game consoles and attached media players combined.
Our non advertising revenue within platform plus also showed healthy growth up 8% to $33 million.
Data and content distribution revenue growth was partially offset by a decline in button revenue due to fewer TV shipments.
In Q3, our smart cast ARPA grew 14% to a new record of $31 55.
As William mentioned, we believe our strategic focus on driving a higher quality install base will only help accelerate this metric further.
One way we aimed to support this approach is through strategic unit pricing.
Since we see about a 30% higher engagement level from larger sized units. This is where we intend to concentrate our pricing investments going forward.
Lastly, total smart cast active accounts grew $1 $3 million year over year to a new high of $17 9 million turning to our device segment.
Total revenue was $270 million TV shipments declined 8% to just over $1 million in the quarter with our average unit price down, 8% as well compared to a 12% decline in the overall TV industry.
An audio sound bar shipments rose, 19% versus the year ago period, along with the 11% increase in average unit price aided by strong demand for our higher end products in our lineup.
With these results, we improved brand share within the sound bar category to 19, 3% from 16, 7% a year ago.
And finally, our balance sheet remains strong and highly liquid we ended the third quarter with cash and short term investments of $335 million and no debt.
So with that let me now turn to what we expect for the fourth quarter.
For Q4, we expect platform plus revenue to come in between 162 and $167 million, representing 20% growth at the midpoint.
We expect platform plus gross profit of $97 million to $103 million, representing a margin of 61% at the midpoint.
And finally, we expect total company adjusted EBITDA in the range of 7% to $16 million.
As we head into the seasonally strong holiday season, we remain confident that we have a compelling product lineup in the market with strong channel inventory levels across the major retailers, we will focus our pricing strategies to align with sell through of units that help to best drive our business.
2023, thus far has been a year of tremendous progress and execution against our strategy, we have transformed our financial profile, resulting in steady growth in customer engagement, our highest gross profit margin and record <unk>.
As we looked at 2024, we could not be more excited with the many opportunities we see ahead.
From the potential for new revenue and active account growth through our operating system partnership initiative to the continued overall shift to AD supported streaming all the way to what is expected to be an all time high in political spending this year is well positioned to continue to build on the investments and successes of 2023.
With that let's open the call up to questions operator.
We will now begin the Q&A session.
If you would like to ask a question. Please press star followed by one or you touched on key pad.
If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.
Please limit your questions to one question and one follow up.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.
Operator, we will take the first question.
The first question comes from the line of Mig <unk> with Steve Please.
Please proceed.
Hey, guys, another solid quarter with platform plus growth so.
Congrats there.
<unk> margins, though under incremental pressure and I think just in general investors are concerned about the ongoing decline in those device margins I'm wondering at what level do you see the device margins leveling out and when that might occur and then just for the meantime, maybe you could talk about.
Balancing negative device margins with active account growth and your view of the lifetime value of a customer just to provide a better understanding of why youre willing to absorb negative device margins in the near term.
Yes, I'll take that thanks, Nick it's Adam.
It's really important what you said there at the end frankly, when you think about how this model works and how we drive growth and overall economics over time and the lifetime value of a customer.
To your point about device margins going negative in the quarter look we're trying to balance being competitive while also being disciplined we have been operating in a very extreme competitive environment lately more extreme than many in this industry have been in a long time have seen.
And so we want to make sure that we're competitive but being thoughtful about how the economics of overall business work and that May mean foregoing some volumes in the immediate term because we don't want to chase some of the really.
Extraordinary pricing that we've seen the way I think about it is more from a system economic standpoint, because you can't really think about our device business as a standalone business separate and apart from our platform business. They work together, we manage them together and all of our strategies and financial approaches take that into consideration. If you look at just.
On a year over year basis, I think the point about our gross profit margin continuing to expand and hit it actually had a new record for us in the quarter speaks to that point I mean on a year over year basis device gross profit margin came down about 160 basis points, but we expanded total company gross profit margin by over 400 basis points. So it's working together.
We think that's the right approach, we want to focus on driving quality accounts that are going to be highly engaged the right units for our model will drive increased profitability and economics, we're now approaching a $30 $32 <unk> on this population with a 60% gross margin. So when you think about our lifetime value, which is part of your quest.
These highly engaged units tend to be with us for six plus years and so if you run those economics out over time, a small upfront customer acquisition cost makes a lot of sense. It is definitely going to generate a positive ROI over time. So we're comfortable with it we think it's we think it's the right structure now that we've scaled up and grown our platform business. We can that we can deploy this.
And the numbers work for us.
Understood. Thanks for that and then you mentioned your willingness to explore partnerships with other TV Oems and the possibility of licensing the smart cast OS two I guess competing.
The Oems in the marketplace you guys have always been so adamant about the unique combination of vizio hardware for and video software.
This obviously seems to represent a strategic shift. So question is what has changed and why now.
And Nick this is Liam.
That question.
I continue to be a firm believer in the integrated experience.
And consumers continue to show their presence.
Great all in one spot TV you can see that sort of decline are done goes on sort of a players.
In my view, the best way to provide an exceptional user experiences to prioritize equally.
Equally important on the power and software.
And make them work together seamlessly to give consumers the best possible experience.
As you know over the past several years will have been investing heavily in our platform I don't know people to deliver great products, great user experience, but as importantly to create a how do you monetize though.
And more flexible operating system, it's broadcast.
When most people think about TV operating system.
Also only thing about how to use the post streaming apps like to see plus or.
<unk>.
So much more than that especially with this design flaw.
Integration was how rami.
Our software is not only great scrutiny expenses, but actually works directly with Howard to make the hour so performed even better.
One way. This is down is to pay for quality enhancement through our internal own software capability will will be able to what was the best Oems in the world and the best component manufacturers in the world to push the boundaries of the final product. This means better contrast ratio better black level better color accuracy, but I'll do it.
To name a few.
Right well no.
To control the living room heats up.
We see a great opportunity emerging in the market, where certain highly value add Oems are looking for deeper pump shipments simply a bolt on or run the OS or did you ship.
They want a partner that has resource or the knowhow to have their product perform better delivery.
The improved experience.
They want autonomy, who can help them build better product.
I was just giving a quality and race to the bottom on price, which in long term. We all know this answer obtainable.
Most importantly, we believe we can create mutually beneficial partnership.
We believe this is not available in the market today.
So.
There is already a well already in early discussion.
And this will take some time to come together.
We're optimistic of the potential of this can bring to leverage the investments we have really made to expand our platform penetration that put her skill.
Our advertising business.
Great. Thanks, so much guys I appreciate it and good luck going forward.
Okay.
Operator, we will take the next question.
We will take our next question from Laura Martin with Needham. Please proceed hi.
Hi, there I have two one.
One is I'm really intrigued by the last follow up point of your press release that says you're the exclusive television partner Intuit, F&B media lab, which unlocks new Tam of data be budgets and a new wave of retail media network partnerships or physio I would.
Really like to learn what Matt and then Adam for you. This EBITDA way over delivered you doubled the EBITDA number versus our estimates in the quarter, you just announced the third quarter, so up 60% year over year.
Guidance for the fourth quarter, how does the EBITDA down the high end down 20% year over year. So was there something unique that won't be recurring in nature or are you guys going to take a bath on.
PV device pricing, which is going to wipe out the EBITDA makeup the lower <unk>.
Going on between the 60% growth in EBITDA in Q3 versus EBITDA down year over year in Q4 guidance. Thank you.
Yeah I'll start thanks, Laura it's Mike.
I think we shared a little bit about this last quarter, but into an intuitive.
Launching a small business focused retail media network.
Call the SMB media labs.
This allows advertisers to target customers are quickbooks across kind of various media properties.
<unk> is the exclusive connected television partner that right, it's really valuable data for us to reach small businesses.
We can augment kind of our best in class TV data with Intuit high Fidelity datasets.
This should continue to help us expand our partnerships in telco and travel as well as newer categories, essentially like Fintech and workplace services.
I think also partnering with Intuit helps put us in to retail marketing discussions, which as you know is a rapidly growing portion of the AD market. So we're pretty excited to be the exclusive partner with them.
Hey, Laura it's Adams and on the EBITDA side.
There are a couple of things in the quarter to think about for this quarter. I mean, we have some glad that we over delivered and it came in certainly ahead of our expectations, which is which is a good thing.
To your question about nonrecurring I did comment about the.
Benefit from capitalized software development costs that that was something that came up during the quarter. It was about $3 million of benefit to the quarter and that that will not repeat going forward. That's one consideration for the quarter in general we're really pleased with.
The advertising strength in particularly the strength on the home screen, we were racing with the challenges in the media Entertainment space, we guided pretty conservatively and making sure that we would capture the fact that those strikes are still underway.
While some of those were resolved theres still a lot of hesitation in the market. There is still the actor strike could still be going on until just this week.
And we were really pleased with the demand that was that still came in and so that came into the higher that comes at a much higher margin and so that helped bolster if you look at the platform plus margin, particularly you see.
Our higher than we would have normally thought or higher within our guidance range expectation. There for Q4 now Q4 is definitely its a higher promotion type of period. It is the holiday season rates, we've got a number of.
Very attractive pricing out in the market to be competitive during the seasonally strong period for consumers. So that's part of it that's what's in our expectation around the guidance and Thats why you see it.
Down basis, because it is a higher promotion period, we will be leaning into that its a great time to be driving growth in active accounts around the holidays and the usual consumer demand picks up at that time.
We've tried to factor all that in.
Thanks very much.
Okay. Thanks, Thanks, Laura operator, we will take the next question.
And we'll take our next question from Ben Swinburne with Morgan Stanley. Please proceed.
Hey, good afternoon.
Two questions one.
Any help thinking about how the upfront went and how that might be impacting the fourth quarter advertising outlook into next year.
And then secondly, I think Adam you mentioned you guys are targeting larger screen format.
Going forward given the higher engagement think I heard that right.
That's true what are the sort.
Are the financial implications of that in terms of either investment levels or your relationship with retailers and shelf space. The competitive dynamics at that higher end anything you can share to help us think about what that means would be helpful. Thank you.
Yes. This is Mike I'll take the upfront question.
I think that as you know upfronts have been kind of slow for everyone but.
From our standpoint, we're up year over year already today in terms of commitments I think we've seen any.
Increased commitments in categories like CPG <unk> pharma.
And while I would say some of the larger upfront market has slowed this year.
Just kind of put us in a much better position of strength. Thanks to our first party data solutions, especially in the scatter market.
So while we are up year over year on the Upfronts were seeing the scatter market is really strong right now.
Without having 66 net new advertisers this past quarter, a majority of those came through scatter.
So our goal is always to ensure we have kind of a healthy baseline of committed dollars coming out of the upfront cycle.
And we can we can close healthy upfronts with major agencies and brand partners and then still kind of grow our scattered dollars throughout over the course of the year, adding.
Adding more of these net new brands to our to our platform.
So.
So our expectation is heading into next year is that we will grow the upfront and with that healthy baseline and.
We expect to grow significantly as we as we improve even more and more in the scatter market.
Yes on the on the <unk>.
Question.
We really liked that larger screen size part of the market.
Our data supports the higher engagement and therefore, the longer and better higher customer lifetime value of those units. There is no doubt as I've mentioned that if you look at our metrics, we're starting to see already some of the improvement in the quality and engagement metrics by the outpacing growth in streaming.
Larger units, which tend to be the main screen in the home are going to significantly outperform in terms of time spent streaming which gives us a better opportunity to serve more ads and monetize homescreen engagement in the over and drive overall <unk>.
As I mentioned in the prepared remarks, our larger screens, which tend to be those mainstream in the home actually deliver in <unk>, that's 30% higher than the smaller units. It's obviously in the blended 31 55, <unk> that we reported this quarter, but that subset of that cohort is certainly delivering much greater economic value. So.
<unk>.
We need to think about how we position we've got great products in the market with great reviews around it that helps drive consumer demand and interest.
We work with our retailers very closely those partnerships to have attractive pricing and merchandising support.
And so there is.
Elements of leaning into that strategy that we know will drive much greater long term value overtime.
Thank you.
Thanks, Ben Operator, we will take the next question.
We will take our next question from Michael Morris with Guggenheim You May proceed.
Hi, This is Charlie on for Mike Morris.
Just wanted to are you guys able to hear me.
Yes go ahead Julie.
Great Yeah.
Thanks for having me here I wanted to follow up on the OEM partnerships and <unk>.
Ask if you could provide any color on how youre thinking about the licensing potential there.
How are you positioning your offer your pitch to partners in order to compete with others like Google Roku and Amazon.
Do you expect to share any advertising economics with the Oems.
Yes.
It's early we're really excited about some of these conversations that are already underway and we're working out details of what these arrangements will look like.
But we really are confident and feel strongly based on the feedback we're hearing that there's a real demand for something different in the market and we hope to be able to bring that.
These partners.
I view. It also is really a tam expansion opportunity for us if you look at the U S. TV market is a little over 40 million units a year, we're at about 11%, 12% market share of that was a very large market outside of our own existing sort of our own product market share, where theres, an opportunity to break into that and penetrate more and more the more we can expand our plan.
For them into the market the more we can scale our advertising business. The more viewership. We can take advantage of we become a more important partner for advertisers content partners really across the board our benefits so.
We will update as these things come together, but early indications.
We're excited about the progress we're already making these early conversations.
Great. Thank you and one follow up if I could on engagement you'd noted the strong growth in the smart cashed hours per account in the quarter can you speak to anything that drove this engagement lift any impact you would call out from the launches of the ESPN NFL apps and then what levers you.
To drive further growth from here.
Yes, I'll kick this off so one of the key factors look we continue to add more apps to the platform I think we shared we added ESPN. We added NFL, we have a ton of great content partnerships that have helped.
Drive more time spent in addition to the already great partnerships, we have but and one of the key drivers this quarter was around the redesign we've implemented so.
As you know, we redesigned our home screen towards the end of last quarter.
It's more immersive it's more interactive it's got a cleaner look and feel.
We're really pleased with the results of the redesign.
Reviewers were overwhelmingly positive consumers definitely are as well.
We know consumers are because they vote with their behavior and not only our streaming hours up but we've also seen engagement rates on the home screen up over 60%. This past quarter. So it's been great for consumers are spending more time, they are engaging more with the home screen.
They are using it more for search and discovery. This is great for advertisers obviously it helps drive more engagement into the apps that they are promoting its great for water plus because.
We invest a lot of home screen real estate and driving consumers into our owned and operated App.
And what is very important factor and it is it's all of them backwards compatible. So if you bought a vizio TV seven years ago, where you have one but one yesterday.
You have that same great redesign on the home screen to help drive more time spent and more engagement.
Yes, Charlie this is Adam I'll, just to add what I like about it is we're seeing real indication that it's not just engagement.
For the sake of engagement, but it's actually engagement in areas, where we have an opportunity to monetize as well. If you look at the statistics, we provided the smart cast hours per active account you can calculate data was up 12%, but our AD revenue per average active account in the quarter was up 16%. So again showing that we're actually able to monetize that engagement and that will help obviously drive.
Our revenue and growth overtime.
Great. Thank you.
Thanks, Charlie operator, we will take the next question.
Okay.
We will take our next question from Steve Kyle.
Wells Fargo. Please proceed.
Hey, guys. This is omar on for Steve.
Just a quick question on the TV licensing opportunity do you envision finding partnerships in your current pricing range or.
Or is this an opportunity more attractive for you guys for device types.
On pricing is where you have a lower market share, especially at the upper end of the market.
Look I think we've got to be competitive in pricing on everything we do I mean that is the market right.
We know we compete with.
Our house brands like on we compete with Tcl high sensor it could be all the way all the way up the ladder and so whatever we do has to be compelling offering for the consumer and has to be competitive but has to be thoughtful and are great and we're looking for a partnership relationship which as we mentioned can be mutually beneficial so back to my comment about continuing to be so.
For competitive but disciplined in our own products and then having these partnerships be an opportunity to expand our Tam beyond that that's really sort of the great add on to this that this can bring to us.
Yes, that's very helpful and maybe staying on the on the competitive environment.
Can you talk around.
What is it like out there from a pricing standpoint, especially across some of your close competitors.
Yes look we track it as you can imagine very very closely across the board to understand where we are positioned versus others.
I would characterize the pricing dynamics as continuing to be very competitive, but not quite as extreme as we saw in Q1 and Q2. Some of the big outliers have moved back up closer to the averages for the on a.
Given SKU.
And that helps a bit.
Certainly.
It takes out some of those very very extreme dynamics, where you saw maybe one.
It may.
Maybe one or maybe two but really one particular brand gain a bunch of share in the first half of the year that seems to have moderated a bit and so we're encouraged by that but theres no doubt we expect it to continue to be competitive into the holidays and that's why we've kind of factored in our positioning and our expectations around the holiday period, where there's a lot of demand we want to make sure that.
We have.
Strong competitive pricing, but again, we're going to continue to be disciplined about how we approach that.
Great Thanks for that.
Thanks, Omar operator, we'll take the next question.
We'll take our next question from Jason <unk> with.
Craig Hallum you may have.
Proceed.
Great. Thank you Adam just a question on the device gross margins I know that turning negative this quarter and the focus on on the bigger screen sizes can you give any more color just on how aggressive you plan to get in.
On those specific skus that you're targeting kind of where margins could go there.
Look we don't we don't guide to specific margins, obviously, theres really a lot of competitive detailed information in that we look at our pricing versus the market, where others are on a SKU by SKU basis and want to make sure that we're competitive but again avoid this sort of a race to the bottom dynamic I think we don't think that some of them.
Pricing strategies are sustainable in the market and as a result, we don't feel the need to chase them in the immediate term that can jeopardize.
Further economics, and so we're going to apply that kind of discipline around it but clearly if you're supporting a 65 inch product with a higher average selling price versus the up 32 then.
Theres different dollars that you need to support but my point is that the customer lifetime value of a 65 inch as an example is significantly higher than the 24 or <unk> 32, and so for that reason youre willing to make that investment because at the <unk> level will now we're now generating and the strong margins in our platform plus business. It is a positive.
Customer lifetime value.
Significant way and so when there's a race to gain households, as we've talked about it's competitive to be gaining and representing.
The operating system in a living room.
We want to be really thoughtful about how we do that and we like our strategy. We'd like this dual revenue structure that we've built we've scaled up and grown our platform business to a level now that gives us that financial and strategic flexibility and we're going to be thoughtful about how we put that in the overall market.
That's perfect. Thank you maybe one for Mike just curious if you can talk about the trends you've seen in advertising recently, we've just heard a lot of commentary on a tougher start to Q4, it doesn't seem like youre really guiding to that but if you've noticed any of that in the market.
No I look speaking for for Vizio here I mean, we saw 27% growth in Q3, I think we're projecting.
Pretty strong growth again in Q4 in terms of trends.
M&A, there's still some uncertainty, but as you mentioned wasn't as bad as we were expecting.
We're well positioned there.
Adding into heading into Q4, there could be could be more upside.
As things come to a close.
Potentially new releases come out or more premieres come out into the market.
But if you look at those 66, new advertisers, we had I mean, we saw a strong vertical growth CPG and <unk> were all up over triple digits.
Pharma was up insurance was up I mean, we saw headwinds definitely in the automotive sector.
But we're still up 60% and we could have captured more dollars there isn't for a separate strikes of their own.
But.
By our ability to continue to add new advertisers, bringing new partners into the fold like automotive we're able to.
Get down into the tier two tier three categories to help accelerate some of the advertising dollars.
So we continue to feel strong about our position heading into heading into Q4.
Great. Thank you.
Thanks, Jason Operator, we'll take the next question.
Okay.
We'll take our next question from Cory Carpenter with Jpmorgan. Please proceed.
Thank you Mike I wanted to ask you about political.
And how these impact do you think that could have working answered gary's prepared for political advertising.
And maybe just bigger picture question on smart cast stratum.
31, or two you still have a gap that youre not youre closing with peers, where do you feel like Youre still moves.
Okay.
Thank you.
Yes, Thanks, Cory we're very optimistic about the 2020 for political cycle.
When you think about what political advertisers are looking for.
They want they want targeted buys against local markets and we're positioned incredibly well right. We have the ability to target audiences down to the most narrow geographic regions.
Just added.
35, more local channels to watch free plus recently to add more and more local content.
We've got obviously unique data through inscape viewing data as well as broad reaching key swing states.
So we're set up well to capture some of I think what people are projecting to be I think $1 $3 billion.
And CTV advertising this cycle.
Last cycle 2022, we learned a lot about how to improve sales we did okay not as good as we should have.
But we learned from that we've added sales staff in D C to be closer to the clients.
And we've also improved our programmatic partnerships and the capabilities, we have there to capture additional demand.
So overall, we're very optimistic.
Our political revenue outlook for the back half of next year.
Yeah and on the ARPA question I mean, obviously, we've made tremendous progress and we're very proud of the team and the execution that has got us to where we are but we also believe there is significant.
Headroom from here if you look at just the U S market, we think there's a lot more room for growth versus the number of this number that we're putting up today and so we've got to continue to keep investing.
Overall experience for the consumer more content user homescreen to drive engagement and ideally drive engagement into areas, where as we've said before where we have an opportunity to monetize we want to deliver an exceptional user experience, but also have an opportunity to serve ads and monetize that time spent there is no better place for us to achieve that and watch free plus.
That's why we continue to add more fast channels. There, we're adding more on demand movie titles in television show titles, we're expanding that capability to bring more to the consumer and a greater value proposition overall of them as we can drive more time.
And monetize content more engagement means more AD serve which means more revenue also as we utilize our targeting tools and the data that we have we can deliver exceptional campaigns for advertisers were looking for specific ways to deploy campaigns and messages to consumers. So take taking all of that together.
Again, we're really excited about the upside that there remains two our <unk> number.
Vizio talent is an area, where theres an opportunity to your point about the gap, we only rolled this out a year and a half ago.
And we're building out the partnerships that are available on vizio account and that will help to drive subscriber revenue in that business. We've got about 40% of all the <unk> that you bought apps that are now including that functionality, we're going to be adding the NFL.
Later this quarter for subscriber revenue as well so as we get the word out to our users that we've got this great way to manage their subscription services to engage with Vizio account and drive growth, we're seeing great lift in premium apps like stars.
That's a place where theres still to your question our gap versus what you see in the existing marketplace. Today. So we're going to continue to work to close them.
Thank you.
Thanks, Corey operator, we will take the next question.
We will take our next question from Tom Champion with Piper Sandler. Please proceed.
Hi, good afternoon.
William I am just curious based on your experience and tenure in the industry what inning of the price War.
On the device side do you think we are in whether this cycle is following kind of a.
A familiar template.
What inning are we in could it extend well into next year and would you.
The.
Device segment to return to a positive gross profit contribution when when all of a sudden done.
I had a second question on.
Vizio accounts, Adam you kind of just.
Talked about it a little bit just wanted to see if there was.
Any any additional update there.
Mike O'donnell, I don't know if you'd have anything to add.
Yeah sure so.
In the TV market thing often downslope for many years.
<unk>.
I think at the beginning.
The year is definitely over.
So our platelet components, but drove down the price quite a bit.
That's the tuition is up quite a bit.
I think the component manufacturer.
They are more.
Yes.
Careful with the pricing because of the.
Do they feel.
The lower price, if there's more of that going to loose they don't want to do that again.
Months ago, there was a surplus of inventories.
A lot of irrational pricing decisions now.
Kind of disappear.
I think the coming years.
The price will be driven by those.
Those components inventory.
Sure.
I think back on the way I think that's really a competition between the CTV.
Systems, where people are fighting for CTG market issue.
Yes.
Yes.
Therefore for years now.
Continue but a component pressure.
Surplus inventory is up quite a bit.
Last few months.
Let him.
Yes.
One for margins sure I mean, I think over time.
As this plays out you could imagine that we can get margin back in to device.
But again to our earlier points in the value of our installed base and the growing value as we execute against the <unk>.
Significant upside we have for <unk>.
From a just from a customer lifetime value standpoint, it continues to make sense to deploy the strategy that we're working on right now so we're going to continue to be focused on that.
Yes, Tom on your question on Vizio account not too much data points to add beyond the Adam So I think a share at 40%.
The <unk> base is integrated.
Over 200% increase in terms of subscriber growth.
Over last year, but one of the things. We've done is we just recently held our developer conference SaaS quarter and.
It is critically important for us to continue to grow our relationships.
With the developers on our platform and Vizio account is one way, we're continuing to do that I think it creates opportunities for them to drive more subscribers to get closer to our customer base.
But we also leveraged as to help and we had over 200 attendees.
Speak to them about other ways in which we can help them monetize what we can do that through advertising and then also some of the unique tools, we have put in place.
Interactivity around our enhancements to our mobile platform.
Enhancements to our home screen, and which we can help them drive more innovation. So vizio account is one component that will help us will help us continue to grow monetization, but I think it's also an important component that helps us integrate more deeply with the App partners on our platform and show them that we have a lot of capabilities for today and for the future.
Thank you guys.
Thanks, Tom Operator, we have time for one more question.
We will take our final question from Tom <unk>.
Please proceed.
J codes.
Yes, Jim Goss.
A question from Jim Goss.
<unk>.
Okay.
Alright, thank you.
Hi, Jim.
Hey, I was wondering first.
The comment about the.
The.
Higher monetization of the larger set so I was wondering if you could talk about the mix of drivers of that higher lifetime value was it.
The increased usage only or were there differences in the AD exposure and the monetization of that.
Events that were taking place.
Well look I think it's sort of both I mean, its the way that they use the unit right. If you could imagine let's just use a 65 inch again as an example, that's going to be the main television in the home that's really going be watching most of their lean back long form content theyre going to be highly engaged with streaming services.
<unk>.
Engaging in a way that we have an opportunity to monetize that interaction not only the home screen would obviously across a variety of third party apps and then hopefully theyre spending.
Growing amount of time in our watch re pluses, we continue to build out and expand that service offers.
Contrast that to a smaller unit, where maybe overtime it becomes a television in the bedroom. It's not used as frequently maybe its a monitor a lot of different use cases can span across the various sizes and so as we understand that data more and more and we understand the lifetime value we understand how many how long a particular TV stays active.
And our fleet it really helps drive and inform us around decisions.
On pricing on retail relationships, because ultimately, it's really it's really about having an opportunity to expand the monetization.
And do you get a combined effect if you have multiple vizio TV households.
Or do you treat them separately.
It's really a device metrics right and so its blend it gets it all gets blended into our average reported.
Statistics. So if a household has a 24 inch in one room and a 65 inch in the other room and they use them differently that will show up on a blended basis and our overall reporting statistics.
Okay and one other quick thing as the Vizio, a branded content studio one of your slides it addresses that I wonder if you could talk about the potential.
The importance of it to what Youre planning to do with that.
Yes, Jim.
Mike I'll take that.
So from a <unk>.
Home screen perspective.
We've been looking at a lot of ways in which we can expand our advertiser base beyond.
Beyond media and entertainment and I think we've done a really good job whether that be with <unk>.
Promotion.
Certain content, we have within our platform whether that be sponsorships of custom curated collections of our channels as well as branded content. It's always in which we can bring a new fleet of advertisers into the home screen or monetize them beyond <unk>.
Video or household connect so branded content studio has been a great addition for us to our advertising offering.
Our TV data helps us understand what are consumers like to watch.
So the branded content initiatives.
Helps us per advertisers with content.
<unk> are there cases, I think youll see we just rolled out this past week, our latest installment it's called Marion bright.
Holiday decorating show.
With Jordan Sparks and its brought to you by home depot.
We think the branded content studio is great because it gives our consumers exclusive original content.
It's great for the advertiser because our users are guaranteed to see the home screen, Let me turn the TV on.
So it will provide great branding for them.
As well as integrations directly into the into the content itself.
With home depot, not only are they integrated into content, but we also have QR codes. So we're able to create a <unk> experience as well.
When you tie it altogether from an economic standpoint, all the investment that we're making in this original content.
<unk> by the partnerships. So we think it's a great way to continue to grow our relationships with non media and entertainment partners integrated into the home screen.
Okay. Thanks, so much.
Great. Thanks, Kipp, Thanks, Jim and thanks, everyone for joining us.